Belgarath

Hmmm... you've convinced me you're right! I didn't think through the extra step. Suffering from optical rectitis again. Thanks to y'all for pointing this out.

Yes, but make sure your plan document allows it. Many don't.

I understand what you are saying, I just don't happen to agree with the interpretation. I think the regulations did clarify that you only need hit one of the "applicable limits." The new 1.414(v)-1 regulations define an "applicable limit" as any of the following: (i) Statutory limit (ii) Employer-provided limit (iii) Actual deferral percentage (ADP) limit If you check those definitions, I think you'll agree that you don't have to use up your otherwise allowable 403(B) catch-up contributions in order to apply the EGTRRA catch-up.

In a twist on this whole issue, our administrative service contracts are with the employer, not the Trustee. Technically, one could argue that since the employer is obligated to pay the fee, that it is impermissible for the plan to pay it since it is an indirect reversion of assets to the employer, relieving the employer of an obligation to pay. It could only be paid by the plan if the contract is with the Trustee rather than the employer. But I agree with PAX - it is their decision, and if the Trustee directs that it be paid from plan assets, although we don't recommend it, it ain't our problem...

Interesting question. I'm not a Roth IRA expert, so another opinion may be more valid. However, under 408A©(3)©(i) and 1.408A-3, q&A 5, it states that "...modified AGI is the same as adjusted gross income under section 219(g)(3)(A)(used to determine the amount of deductible contributions that can be made to a traditional IRA by an individual who is an active participant ina an employer sponsored retirement plan), except that any conversion is disregarded in determining modified AGI." Not e that the Code does not use the word "modified" whereas the Reg does. If you can hang your hat on the "any" conversion, then you shouldn't have to count it. There may be something else that trumps this specific to the 4-year special conversion, but I couldn't find anything. My opinion is that you wouldn't have to count it.

Yes, he can establish a SEP.

I'm not sure I agree that you must first exhaust any of the other 403(B) catch-up provisions. Seems to me that as long as you run up against a limit, whether statutory or plan-imposed, that you can use an EGTRRA catch-up. Now, it's certainly possible that a non-EGTRRA catch-up will provide the client with a larger catch-up than the EGTRRA catch-up, but that's a separate issue.

Shafter - it seems to me that I read somewhere that California had some non-conforming statutes, and their legislature didn't get one passed this year. But I can't begin to tell you where I saw that - it may have been a link on the "Benefits Buzz" or it may have been somewhere else. Sorry I can't be any more specific!

Gary - can you clarify something for me? When you say that he can contribute to the SEP as well as the qualified plan, I'm assuming this is if he has a prototype SEP, and not the IRS model SEP? I've always understood that if you use the IRS model SEP, then you can't contribute to another plan. Thanks.

The way I read it (EGTRRA) Section 642(B), the two year rule still applies.

Mitchg10 - Your pension plan can generally invest in "non-traditional" investments - such as real estate, for example. You need to be very careful about prohibited transaction issues, and Fiduciary prudence issues, (diversification, liquidity, safety, etc...) but provided you do all this, such investments are permissible, unless the plan document prohibits them - and some do. As far as the IRA's, there is more latitude regarding the type of investments, since it is your own money you are investing. But prohibited transaction issues still apply - so you cannot hire yourself as contractor in your IRA, for example. UBTI applies, but I'm not familiar with the strategies for avoiding it. I'm guessing there may be some, but have no firsthand knowledge. claretcollector - if you haven't had a 1990 Chateau Montrose, sell your soul to get a taste of one! One of the greatest wines I've ever tasted. One of the few I ever bought on futures that worked out...

You might want to consider getting Derrin Watson's book. "Who's the Employer." Best reference source I've ever seen for CG/AFSG questions.

A lot of good points brought up. We primarily handle plans for small employers, and the insurance is at the option of the participant, so typically it is only the keys who elect to purchase it. And they usually keep the policy when plan is terminated. So although I understand the anti-insurance bias that many of you have, I'd just say that you shouldn't automatically discard the idea. There are some situations where it is appropriate and works very well. Many more situations where it isn't!

I agree with Merlin that the EGTRRA committee report does not give the blanket exemption. But maybe I'm wrong, and this is the approach that will be taken. Certainly would be nice. I would look into the possibility of a "John Doe" submission under EPCRS. See Revenue Procedure 2001-17. This would give him the opportunity to see if they would accept a solution that he can handle. I'm personally a bit dubious that they would accept the 50% solution, but perhaps if it is gussied up a bit, and if you have a kindly reviewer, maybe something can be worked out. Good luck!

AndyH - I think you are confusing something here. The only portion that is not deductible by the self-employed person is the taxable term cost (also known as PS58). The balance of the premium is indeed deductible, and has been right along. So, for example, if you have 10,000 premium with $400.00 taxable term cost, the S/E person deducts 9,600.

Good point.

We have a lot of plans with life insurance in them. I agree that administrative difficulty is magnified. Just depends upon the agent/company selling the insurance. Some good, some not so good, some terrible! But there can be some good reasons to do it. Assuming you have a good CPA/attorney/planner who takes into account the overall picture, including estate planning, then the opportunity to deduct life insurance premiums shouldn't be ignored. And if you do 412(i) plans, and life insurance is needed by the client anyway, then it can help generate some enormous deductions. (But don't ever put life insurance in a plan just for the sake of deductions - the client has to need it!)

I'm not sure I agree. The term employee, as used in the new regs, is defined in 1.401(a)(4)-12 as an employee within the meaning of 1.410(B)-9 who benefits under the plan for the plan year... Now, assuming you pass the nondiscrimination tests as you indicated, then those employees receiving a zero allocation are not employees under the regulation, and therefore don't need to be given the Gateway allocation. At least, this is the interpretation we're going to take until there is any guidance otherwise. I think it's statutorily correct, at least. Hopefully the IRS won't think otherwise.

No. The premature distribution tax is imposed on the amount of the distribution includable in gross income. IRC 72(t)

Depends upon who you ask. There are experts who come down on both sides of the issue. I don't like it myself. If you take the position that it is allowable, you'd definitely have to offer to all participants - this would be a benefits/rights/features issue. As far as the benefit to the participant, it actually would be a benefit, because the plan is providing it, and the participant isn't paying for it. Would just require higher contributions from the employer.

I think we are basically agreeing. "most plans" will be those of a sponsor that has submitted timely for GUST, and employers who have adopted or certified intent to adopt. So you would indeed have until at LEAST 12-31-02, and maybe later. I was just clarifying the GUST remedial amendment period.

Actually, assuming the employer either adopts a document from a sponsor who submitted timely for GUST, or certifies jointly with the sponsor prior to 12-31-01 that they will adopt such document when it becomes available, will have until the later of the following dates: 1. 12-31-2002, or 2. The last day of the 12th month following the month in which the latest of the sponsor's GUST approval letters are issued. See IRS Notice 2001-42, which modifies Rev. Proc. 2000-20.

Yes.

Anybody know much about these? I know what they are, and the theory, but I'm having trouble justifying some of what is going on with regard to qualified plans, and maybe the IRS has provided guidance I don't know about! We had a client who is a PEO. Member companies would sign a contract with the PEO, and essentially "terminate" their employees, and hire them back from the PEO. The PEO has no right to hire and fire them, cannot direct their work, hours, etc... essentially they are a payroll service. They wanted a 401(k) for the PEO, and then individual companies would have a cross-tested plan covering only the keys, while the non-keys would participate in the 401(k). We told them to go find another TPA. But I'm curious as to what other folks out there think of this type of arrangement, and whether you are aware of any IRS guidance regarding PEO's and their sponsorship of qualified plans. Thanks in advance.

I'd be very careful on the bonding issue. (my personal opinion is that not getting the bond is just begging for trouble.) Specifically, make sure you check your plan document, as many documents require the bonding. In addition, although I haven't seen anything suggesting this, I'd be concerned about the liability for violating the fiduciary prudence standards of ERISA 404(a)(1)(B). I'll bet the DOL could take a fiduciary to the cleaners on this.